Nov. 12, 2007 - Appleton today reported net income of $7.3 million for the third quarter of 2007, an increase of $2.2 million or 44.3% over the third quarter of 2006.

Appleton's net sales for the third quarter ended September 30, 2007 were $272.9 million, a slight increase compared to the same period last year. The third quarter 2007 increase in net sales was the result of improved pricing in some product lines offsetting generally lower unit volumes. Appleton's net income improved, despite lower gross profit, primarily because of lower selling, general and administrative expenses during the period.

Appleton's net income for the first nine months of 2007 was $5.5 million compared to $11.8 million reported for the same period in 2006.

For the first nine months of 2007, net sales decreased 2.0 percent to $793.5 million, compared to $810.1 million in the first nine months of 2006. Results for the first nine months of 2007 primarily reflected lower sales volumes, unfavorable mix and higher raw material costs which offset improved pricing in certain product lines, manufacturing productivity improvements and reduced selling, general and administrative expenses.

Technical Papers

Technical Papers third quarter net sales of $222.5 million were $4.1 million or 1.9 percent higher than third quarter 2006. Net sales of carbonless paper decreased $1.6 million, or 1.1 percent, compared to third quarter 2006, primarily due to lower unit volumes and unfavorable mix. Third quarter 2007 carbonless shipment volumes were 1.5 percent lower than third quarter 2006 despite growth in international markets. Net sales of thermal papers increased $4.1 million, or 6.2 percent, compared to third quarter 2006. Improved mix and increased shipment volumes of 1.7 percent contributed to the increase in net sales over third quarter 2006. Third quarter 2007 net sales of security papers were slightly higher than the same period last year despite a 5.0 percent reduction in shipment volumes.

Technical Papers third quarter operating income increased $0.2 million or 1.3 percent to $19.1 million. An overall $2.3 million decrease in gross profit was offset by the benefit of lower selling, general and administrative costs. The decline in gross profit reflects lower overall volumes, competitive pricing pressures in lightweight thermal papers and higher raw material costs which offset improved pricing in other grades and manufacturing productivity improvements.

Prices for Appleton's lightweight thermal papers have been increasingly affected by imports of low-priced products from China, Germany and Korea. In September 2007, Appleton filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission alleging that lightweight thermal paper products imported from China, Germany and Korea are being wrongfully dumped in the United States. Appleton also alleges that the Chinese government is wrongfully subsidizing the Chinese lightweight thermal paper industry. Appleton is asking the Department of Commerce and the International Trade Commission to impose offsetting duties on lightweight thermal paper products imported from those countries. The U.S. International Trade Commission is scheduled to make its preliminary injury determinations on or about November 23. Final determinations can take up to a year to complete and there are no assurances the U.S. International Trade Commission will impose offsetting duties.

Performance Packaging

Performance Packaging third quarter 2007 net sales decreased $3.6 million, or 12.7 percent. Lower shipment volumes and unfavorable mix offset improved pricing during the current quarter. Third quarter operating income of $2.0 million was $0.7 million lower than third quarter 2006 operating income. Lower gross profit resulted from lower volumes and higher resin costs which more than offset gains from manufacturing productivity and improved pricing.

Secure and Specialized Print Services

Secure and Specialized Print Services third quarter 2007 net sales increased $0.3 million or 1.0 percent to $25.7 million. The impact of favorable exchange rates offset the impacts of lower volume and unfavorable pricing and mix compared to the prior year period. This business recorded operating income of $0.1 million during third quarter 2007 compared to an operating loss of $0.2 million for third quarter 2006. The current period improvement was primarily due to lower restructuring expense.

Other (Unallocated)

Other (Unallocated) includes costs associated with new business development activities and unallocated corporate expenses. Other (Unallocated) costs decreased $1.1 million in third quarter 2007 compared to third quarter 2006, primarily due to lower restructuring expense associated with a closed distribution center in New York.

Balance Sheet

In July 2007, Appleton entered into a new $12.1 million Loan and Security Agreement with the Director of Development of the State of Ohio, consisting of a $9.1 million State Assistance Loan and a $3.0 million State Loan. The proceeds of these loans will be used to fund a portion of the costs of acquiring and installing paper coating and production equipment at Appleton's paper mill in West Carrollton, Ohio. Capital spending during third quarter 2007 totaled $11.6 million, bringing the year-to-date total to $28.4 million. Also during third quarter 2007, Appleton repurchased $5.5 million, plus interest, of its 8.125% senior notes payable due June 15, 2011 and $10.3 million of its common stock.